Netflix misses its growth targets but expects to hit 102M subscribers next quarter

Monday

Netflix whiffed today in its first-quarter earnings when it came to subscriber growth, missing the expectations it set at the beginning of the year for the first quarter.

Still, Netflix said it is expecting to add 600,000 domestic subscribers and 2.6 million international subscribers in the second quarter. That would bring it over the hump to get it past that 100 million mark that — again — may be some kind of signal of faith for the company as it looks to continue growing internationally amid heavy spend on content. The subscriber numbers are more or less the key part of Netflix’s business because it’ll determine whether or not it can level off the spend on content to grow and keep users around against the revenue it generates from those subscribers.

In the end, shares of Netflix fell around 3% following the report, but it could have been quite a bit worse. Netflix can be prone to major swings in its stock price based on the subscriber numbers it delivers every quarter. The last one looked good, so they saw a pretty hefty stock jump. Netflix earnings of 40 cents per share on revenue of $2.64 billion. Analysts were also expecting earnings of 37 cents per share on revenue of $2.64 billion. Near-term, things might not have looked that great, but the better-than-expected guidance seems enough to buoy enough major suspicions about its future potential.

The company added 1.42 million domestic subscribers and 3.53 million international subscribers. Netflix itself projected that it would add 5.2 million subscribers in the first quarter — 1.5 million in the U.S. and 3.7 million internationally. That estimate would have brought Netflix to 99 million subscribers, tantalizingly close to a nice round number that may or may not impress investors going forward.

In January, Netflix reported domestic subscriber growth that was much stronger than what Wall Street was expecting, which ended up sending the stock price soaring. It was a pleasant surprise — and maybe a relief — given that a lot of the focus and attention was given to its international expansion after it decided to open up to a wide array of new countries. International growth, too, beat expectations, with the company adding 5 million new subscribers.

Getting that growth up is going to be even more important given the amount of money Netflix has to invest to get those subscribers to stick around and gather new ones. In addition to the costs of producing original content, Netflix also said it would spend $1 billion in marketing this year.

“As part of this, we are investing more in programmatic advertising with the aim of improving our ability to do individualized marketing at scale and to deliver the right ad to the right person at the right time,” the company said in the earnings release.

In the past year, Netflix has seen a steady climb up as it looks like its expansion plans aren’t running into its major issues, though it has a lot of big markets that it has to get into. It also has to invest heavily in original content for those new markets, given that it can’t just rely fully on its existing library and the content that does well in its domestic markets. Last quarter, Hastings pointed to a new show called The 3% that was launched in Brazil and was highly successful.

Netflix’s report today kicks off the first quarter of the tech earnings season. Following a string of successful IPOs through the first quarter, we’ll see how industry observers will be reacting to what the rest of the tech world is delivering.